US embassy cable - 05RANGOON146

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000146 
 
SIPDIS 
 
STATE FOR EAP/BCLTV, EB 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA 
USPACOM FOR FPA 
 
E.O. 12958: DECL: 02/03/2015 
TAGS: ENRG, PREL, ECON, BM, Economy 
SUBJECT: NEW GAS IN BURMA: PIPE DREAMS? 
 
REF: A. 04 RANGOON 1057 AND PREVIOUS 
     B. 04 RANGOON 876 AND PREVIOUS 
 
Classified By: COM CARMEN MARTINEZ FOR REASONS 1.4 (B,D) 
 
1. (C) Summary: The Burmese government is salivating over 
prospects that a tri-nation (Burma-Bangladesh-India) pipeline 
will be constructed to carry Burmese natural gas to India. 
Though the developers of the new gas fields and the three 
governments are full of good news at the moment, outside 
observers are skeptical and await further test wells and 
honest technical assessments of the pipeline's feasibility. 
If all goes well, 2005 could see the first steps toward a new 
multi-year stream of foreign exchange revenue.  However, if 
things falter, the GOB will be high and dry, with few 
prospects for major new hard currency revenue.  End summary. 
 
Bay of Bengal Gas and Pipeline: Much Ado About What, Exactly? 
 
2. (SBU) On January 12-13, the energy ministers of Burma, 
Bangladesh, and India met in Rangoon and agreed to cooperate 
to pipe Burmese natural gas from the Bay of Bengal, through 
Bangladesh, into India.  According to the text of the 
agreement, the design and route of the pipeline would be 
determined later and the three governments would establish a 
"Techno-Commercial Working Group" to meet to prepare a draft 
Memorandum of Understanding (MoU).  The GOB has called for 
this meeting to occur on February 14 in Rangoon.  This 
ministerial agreement seems to put to rest some confusion 
over which way, theoretically, the Burmese would export the 
natural gas that it expects to be found in commercial 
quantity west of Rakhine State, near the border with 
Bangladesh.  There had been some talk in recent months that 
Daewoo (or perhaps the Indian government) would build a 
Liquefied Natural Gas (LNG) facility onshore in Sittwe, the 
coastal capital of Rakhine State.  This plan now seems 
shelved. 
 
3. (C) Daewoo is the operator of an exploration and 
development consortium that is currently drilling test wells 
and taking seismic data in two offshore blocks (A-1 and A-3), 
west of Sittwe.  Daewoo's initial exploration agreement and 
Production Sharing Contract (PSC) with the parastatal Myanmar 
Oil and Gas Enterprise (MOGE), came in June 2000, under which 
the GOB granted Daewoo 5.5 years for exploration in block 
A-1.  In late 2001 and 2002, Korea's KOGAS and India's GAIL 
and OVL bought shares of 10 percent, 10 percent, and 20 
percent respectively.  Based on two test wells drilled in 
2004 and this year in the Shwe field of block A-1, the 
consortium is publicly claiming estimated gas reserves of 4-6 
trillion cubic feet.  Daewoo estimates that two other fields 
in A-1, Shwe Phyu and Ngwe, might have 7-12 trillion cubic 
feet combined.  For comparison, the existing Yadana and 
Yetagun offshore fields in the Andaman Sea, currently in 
production by two international consortia, have about 10 
trillion cubic feet in proven reserves combined. 
 
Skepticism Remains 
 
4. (C) Though this looks good on paper, a western oil company 
official told us he was withholding judgment on the 
commercial viability of the gas reserves until the consortium 
completes several additional test wells between now and 
mid-2005.  He said that Daewoo had found some gas in its 
second test well, but not as much as in the first well 
drilled last year.  In addition, the complications of 
delivery of the Bay of Bengal gas are far greater than for 
the natural gas now being piped from the Yadana and Yetagun 
fields in the Andaman Sea to Thailand.  For example, the 
pipeline length would be greater and would either pass 
through hundreds of miles of very rugged and undeveloped 
onshore terrain, from Sittwe to India, and perhaps also along 
the seabed under very deep water.  Because of this, the costs 
would be extremely high -- and require a particularly large 
find to make the whole project economically viable.  To 
summarize, the oil company official said right now, "the 
pipeline is a pipe dream." 
 
5. (C) Nonetheless, he added, GOB energy officials had been 
telling him that there was an urgency to complete the 
tripartite agreement by the end of March.  He did not know 
why the rush, but said his GOB contacts had speculated the 
Indian government was keen to finalize the agreement as a 
counterweight to expanding Chinese government economic 
assistance programs (ref B).  It's also possible that the GOB 
Energy Ministry could be under pressure to move the pipeline 
process along to ensure no time is wasted when (or if) Daewoo 
is prepared to bring its production online.  In any event, 
the western executive opined that once the MoU was signed, 
movement on the pipeline would likely grind to a halt until 
Daewoo had completed its exploration. 
 
Comment: Boom or Bust? 
 
6. (C) For Burma's energy sector, investment statistics, and 
foreign exchange coffers, what happens in the Bay of Bengal 
over the next year will be very significant.  The Daewoo 
"find" (five years in the making) is currently the biggest 
and best hope for a significant new income stream from 
Burma's energy sector.  However, though foreign investors 
have recently signed a few additional exploration agreements 
(septel), any production would be far in the future and there 
is little expectation at the moment that any of these new 
explorations will lead to much.  As have Total's and 
Petronas' gas exports to Thailand, Daewoo's gas exports to 
India would be very lucrative for the GOB.  The PSC Daewoo 
signed in 2000, provides a 60/40 or 65/35 profit split in 
MOGE's favor (depending on volume and depth of the wells) as 
well as a multi-million dollar "Production Bonus" depending 
on volume.  Such revenue would be lessened by the cost of the 
pipeline.  However, it is unclear how much the Burmese would 
be expected to contribute to the construction and how this 
contribution would be paid.  On the other hand, if Daewoo's 
additional drilling turns up a smaller than expected 
reservoir, or if the tripartite pipeline project dissolves 
over expenses or politics, Burma will get nothing, with few 
new sources of foreign exchange on the horizon.  End comment. 
 
7. (U) This cable has been reviewed by Embassy Dhaka and 
passed to Embassy New Delhi. 
Martinez